Company announces $100 Million cost-savings plan from strealining its North American supply chain

MINNEAPOLIS, Minn. - General Mills (NYSE: GIS) today reported results for the first quarter of fiscal 2015, and provided an update on new cost-reduction initiatives designed to sharpen the company’s efficiency and growth focus in 2015 and longer term.

Adjusted diluted EPS totaled 61 cents, down 13 percent from 70 cents in last year’s first quarter. Foreign currency translation did not have a material effect on adjusted diluted EPS.

Constant-currency net sales, total and constant-currency segment operating profit, and adjusted diluted EPS are each non-GAAP measures. Please see Note 7 to the Consolidated Financial Statements below for reconciliation of these measures.

General Mills Chairman and Chief Executive Officer Ken Powell said, “Back in June, we said our 2015 plans anticipated first-quarter EPS below year-ago levels. Our results were driven by sales and profit declines in the U.S., where industry trends were weak in the quarter. In addition, higher merchandising expense for our U.S. Retail businesses in this period depressed reported net sales and gross margin.”

General Mills said year-to-year differences in merchandising expense phasing are expected to have less impact on subsequent quarters in 2015. Product innovation and consumer-directed marketing plans, holistic margin management (HMM) cost savings and several incremental cost-reduction actions are expected to drive improved sales and margin performance across the remainder of the year. The company reaffirmed its constant-currency growth targets for the full 2015 fiscal year, but acknowledged conditions in the U.S. market are more challenging than expected.

“We made some important progress in the first quarter,” Powell added. “In U.S. Retail, our Yoplait yogurt business returned to growth, with volume, sales, and market share gains. Several other key product lines including Big G cereals, grain bars, and fruit snacks achieved market share increases. Our Convenience Stores and Foodservice segment generated sales growth and an 18 percent operating profit increase. And our International business segment posted 17 percent constant-currency profit growth with good constant-currency sales gains, notably in Latin America and Europe.”

Corporate itemsUnallocated corporate items totaled $119 million net expense in the first quarter of fiscal 2015, compared to $74 million net expense a year earlier. Excluding mark-to-market valuation effects in both years, unallocated corporate items totaled $70 million net expense this year compared to $73 million net expense a year ago.

Net interest expense totaled $78 million in this year’s first quarter, compared to $79 million a year ago. The first-quarter adjusted effective tax rate was 32.3 percent, essentially comparable to last year’s 32.2 percent rate. (Please see Note 7 below for reconciliation of this non-GAAP measure.)

Cash flow itemsCash provided by operating activities totaled $329 million in the first quarter. Capital investments in the period totaled $149 million. Dividends paid increased to $254 million. During the quarter, General Mills repurchased nearly 9 million shares of common stock at an aggregate price of $462 million. Average diluted shares outstanding for the first quarter of 2015 totaled 629 million, down 5 percent from last year’s first-quarter average of 660 million.

New cost-reduction initiatives In June of this year, General Mills announced it had initiated several new cost-reduction projects designed to boost organizational efficiency and sharpen business focus behind the company’s key growth strategies. These initiatives are incremental to the company’s ongoing Holistic Margin Management (HMM) program, under which the company expects to generate supply chain cost savings exceeding $400 million in fiscal 2015.

Project Century is a formal review of General Mills’ North American manufacturing and distribution network, with the goals of streamlining operations and identifying potential capacity reductions. Today, General Mills said that this initiative is expected to generate $100 million in annualized savings by fiscal 2017. Actions associated with this project are expected to commence in the second quarter of fiscal 2015. General Mills also has initiated efforts to further reduce overhead costs. These efforts are targeted to generate savings of $40 million pre-tax in fiscal 2015, with additional savings expected in 2016. Charges associated with the North American supply chain review and overhead reduction projects (primarily asset write-downs and severance costs) will be excluded from General Mills adjusted diluted EPS.

In addition, General Mills recently announced a restructuring plan to combine certain Yoplait and General Mills operational facilities in our International segment. Restructuring expense of $14 million associated with this project was recorded in the first quarter of fiscal 2015 and is being excluded from adjusted diluted EPS. The project is expected to generate cost savings of approximately $3 million in fiscal 2015 and a cumulative $12 million by fiscal 2017.
Outlook
Powell said, “Our number one objective in fiscal 2015 continues to be accelerating our topline growth. At the same time, we know we must always be working to reduce costs, streamline operations and improve efficiency across our worldwide business. We’ve got strong plans for both of these efforts.”

General Mills reiterated its full-year growth targets for 2015. Net sales are expected to grow at a mid single-digit rate in constant currency, including contribution of a 53rd week in this fiscal year. Segment operating profit also is targeted to grow at a mid single-digit rate in constant currency. Benefit of the extra fiscal week will be reinvested to support increased advertising and digital media initiatives, along with project expenses related to several key fiscal 2016 product launches. Adjusted diluted EPS (which excludes mark-to-market valuation effects, currency devaluation, and restructuring, exit and other project-related costs) is expected to grow at a high single-digit rate in constant currency. At current exchange rates the company estimates a 2-cent headwind from currency translation in 2015.

General Mills will hold a briefing for investors today, September 17, 2014, beginning at 8:30 a.m. Eastern time. You may access the web cast here.

Contact: (analysts) Kris Wenker: 763-764-2607

(media) Kirstie Foster: 763-764-6364

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. These forward-looking statements, including the statements under the caption “Outlook,” and statements made by Mr. Powell, are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. In particular, our predictions about future net sales and earnings could be affected by a variety of factors, including: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in the legal and regulatory environment, including labeling and advertising regulations and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. The company undertakes no obligation to publicly revise any forward-looking statement to reflect any future events or circumstances.